Capital Investments

the input of labor, material and technical resources, and monetary means for the reproduction of fixed assets.

In capitalist countries, capital investments are one of the most important forms of capital accumulation. The dynamics and the structure of capital investments in these countries determine the rate of growth and the course of the economic cycle.

In the USSR, capital investments are an integral part of capital construction, as are design and site exploration and the development of corresponding project organizations; construction work and installation of equipment; and the development of the output capacities of construction and installation organizations. According to the methodology adopted in the USSR, capital investments do not include the expenses of geological prospecting unconnected with the construction of specific projects; planning and projects of construction of cities and urban-type settlements or of standard building designs; afforestation and the planting of trees and forest strips; the acquisition and formation of basic livestock herds; or the acquisition of equipment for existing state agencies, schools, hospitals, and establishments for the care of children. Capital investments also do not include major repairs of fixed capital.

The expense of capital investments is charged to the accumulation fund of the national income and partly to the depreciation allowance (more than 40 percent of the total); planning and accounting of capital investments is done using accounting prices (1969 prices). In developing the plans for the national economy, the total volume of capital investment includes all sources of finance: from state and cooperative enterprises and organizations, kolkhozes, the population (construction of privately owned houses and apartments), the state budget, and credit institutions. Important sources of financing capital investments are the fund for production development and the fund for social and cultural development and housing construction. The major result of capital investment is that fixed assets are completed at the proper time. A characteristic trait, as well as an important advantage, of the socialist economy is that the completions of fixed assets and the capital investments are constantly growing (see Table 1).

Completions of fixed assets increased 34 times from the introduction of the first five-year plan to 1966–70. The yearly average growth rate of capital investments in the USSR amounted to 9.7 percent in the period 1951–70 (compared to the US rate of 2.6 percent; in 1950 the capital investments in the USSR were 30 percent of the capital investments of the USA, whereas by 1970 they were approximately at the same level). The implementation of construction programs ensured a rapid rate of growth for the Soviet economy and the qualitative improvement in the proportions between the sectors, the growth of the economic potential of the country, the raising of the technological level of all sectors, an improvement in the distribution of productive forces, and the rise in the material well-being of the people.

A systematic growth of capital investments is characteristic for other socialist countries as well. The yearly average growth rates of capital investments for the period from 1961 to 1965 amounted to 7.9 percent in Bulgaria, 4.7 percent in Hungary, 5 percent in the German Democratic Republic, 7 percent in Poland, 11.2 percent in Rumania, and 2 percent in Czechoslovakia. From 1966 to 1970 the growth was 12.5 percent in Bulgaria, 10.5 percent in Hungary, 9.9 percent in the German Democratic Republic, 8.5 percent in Poland, 11.2 percent in Rumania, and 7.3 percent in Czechoslovakia.

Of great significance for the national economy has been the shortening of the period needed for the creation of new productive capacity, which raises the efficiency of capital investments. In their physical and material form, capital investments consist of the output of the machine-building industry (equipment, tools), of the construction industry (including buildings and other construction, as well as assembly and placing of equipment), and of agriculture (that part of the livestock herd intended for reproduction). In the USSR, the sector principle is adopted as a basis for planning capital investments; that is, capital investments are planned according to the sectors of material production and the sectors of the nonproductive sphere, with sectorial and territorial planning being combined. Capital investments are distributed according to sectors, based on the rates and proportions of development outlined in the national economic plans. More than one-third of all capital investments are directed to the development of industry and especially to those sectors that ensure technological progress and increased labor productivity (power industry, machine construction, chemical and petrochemical industry) and the sectors processing agricultural raw materials and producing consumer goods. In 1966–70, the share of capital investments in agriculture was 18 percent of the total. More than one-fourth of all capital investments go to housing construction and to development of public education, science, culture, and the arts. The economic efficiency of capital investments has increased because of the increased share of equipment, tools, and inventory, which amounted to 34 percent of all capital in 1946–50 and to 41 percent in 1966–70.

Capital investments and the completions of fixed assets ensure the maintenance of working capacities and the replacement (simple reproduction) and increase (extended reproduction) of fixed assets. Extended reproduction (net investment) of production fixed assets is realized through the construction of new and the reconstruction and expansion of existing enterprises and the replacement of old equipment with modern machines and devices. In 1960, 55 percent, and in 1970, 58 percent of total capital investments consisted of reconstruction, expansion, and reequipment of existing enterprises. In the USSR, 89 percent of all capital investments were made by state and cooperative (excluding kolkhoz) enterprises, agencies, and organizations and 9 percent by kolkhozes. The capital investments of the population in privately owned houses and apartments in 1970 accounted for the remaining 2 percent.

The basic form of planning capital investments is the five-year plan, broken down by years. The targets of the five-year plan are clearly defined and specified in the annual plans, which take into account the course of the economic development and the change in resource availability. The plan includes targets for completions of fixed assets; for the volume of capital investments, including construction work and installation of equipment; and for the level of unfinished construction. The plans are drawn in terms of sectors, ministries, and departments of the USSR and the Union republics. For the substantiation of capital investments, diagrams of the development of sectors of the national economy and industry are used, as are diagrams of the placement of productive forces in the economic regions and the Union republics, balances of production capacities and material resources, and technical and economic calculations and standards (such as specific capital investments, the length of the construction period, and any work done in anticipation). A calculation of the efficiency of the capital investments is made at the same time as the basic indexes of these investments are developed.

The Communist Party and the socialist state pursue a policy aimed at increasing capital investments, particularly investments in progressive sectors of the economy. At the same time, steps are taken to make significant improvements in the efficiency of capital investments, to ensure the most rational use of material and financial resources earmarked for construction, to provide for the necessary concentration of capital investments, and to reduce the number of enterprises and projects being built simultaneously and to take measures against the accumulation of unfinished construction above the permissible norm. Construction of industrial projects, houses, and child care establishments and other nonproductive units is coordinated.